DP11710 | Waiting for a haircut? A bargaining perspective on sovereign debt restructuring

Publication Date

12/14/2016

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Abstract

Recent investigation of sovereign debt negotiations finds that prompt, market-friendly ‘reprofiling’ often fails to achieve sustainability; but serious debt restructuring typically involves delay. We develop an incomplete information bargaining model to account for this, highlighting economic recovery and sustainability considerations as complementary reasons for delay. Some recent settlements are discussed, along with some policy implications of excessive profiling.